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Companies that didn’t file a report last July 1 on unclaimed property because they thought they didn’t have any, now have until Jan. 31 to sign and return Michigan Treasury Form 4305, Attestation of Compliance with Unclaimed Property Reporting.

CPAs agree that the hundreds of thousands of companies that got Form 4305 in the mail in mid-December should be aware there is now much stricter enforcement of the unclaimed property law in Michigan — but they disagree on how many companies really do have reportable unclaimed property.

Jeff Carr, of BDO USA, says “everyone.”

John Pridnia, chair of the Michigan Association of CPAs and principal at the Rehmann office in Muskegon, said it is probably 5 to 10 percent, at most.

Dennis Echelbarger, of Echelbarger, Himebaugh, Tamm & Co. in Ada, and a former chair of the MACPAs, speculated the number of companies with unclaimed property is probably somewhere between Pridnia’s low estimate and Carr’s “everyone.”

The law seems confusing, but CPAs agree no business can afford to ignore it anymore.

Michigan Public Act 29 of 1995 requires every business that has unclaimed property that has been “dormant” for a specific length of time, and belonging to persons or entities whose last known address was in Michigan, must annually report and turn that property over to the Unclaimed Property Division of the Treasury Department.

Carr, a partner at BDO in Chicago, said the top four unclaimed property types are accounts receivable credits, uncashed payroll checks, uncashed vendor checks, and uncashed employee benefit checks involving third party administrators. Abandoned/unclaimed bank accounts and amounts held by insurance companies are also included, but Carr said accounts receivable credits are probably “the largest source of abandoned property.”

“What makes this year different is that the unclaimed property act was recently amended, shortening the dormancy period for many reportable items down to three years,” said Pridnia. The reporting due date has also changed from Nov. 1 to July 1, and the Michigan Treasury now wants businesses to complete and return Form 4305 if they are certain they had nothing to report in 2011.

According to Carr, the Michigan Treasury sent about 370,000 notices last summer to companies doing business in Michigan that had not reported unclaimed property nor submitted Form 4305 by last July 1. Carr said Treasury got 40,000 responses, “of which 30,000 reported zero (unclaimed property) and 10,000 reported something,” said Carr.

He said Michigan Treasury officials “realize there’s a lot of (businesses) out there that have not filed abandoned property returns. They’re trying to get them to comply.”

In mid-December, Treasury sent out a second notice to companies that had not reported unclaimed property or Form 4305 by last July 1. The notice included an Unclaimed Property Voluntary Disclosure Agreement and stated that companies that are certain they have no unclaimed property to report must return the VDA or Form 4305 by Jan. 31. By signing the VDA, a company will not be subject to penalties and interest on property “voluntarily remitted pursuant to your enrollment in this program.”

Treasury’s website states that “most businesses have unclaimed property resulting from normal operations, (and) uncashed payroll checks must be turned over to the state after one year; most other property types, such as vendor checks and accounts receivables credit balances, must be turned over after three years.”

However, the website also states that “unpaid wages under $50 are not reportable as unclaimed property. This is the only property type with a minimum balance not due to the state. All other property must be reported, regardless of dollar amount.”

“A lot of folks don’t understand what they need to do to comply with the state’s request,” said Carr, predicting that many will undertake only a cursory examination of their books.

“And that’s not really what the (Michigan Treasury) department is looking for,” said Carr.

Carr said the unclaimed property report due July 1 is “a time intensive process” that involves review of records back to 2002, and “you have to look at bank statements, outstanding checks lists, reconciliation. You have to go through it and verify that all these items cleared out. A lot of them don’t know that that’s really what they are supposed to do, so they’re just going to take current year data and say ‘I don’t have anything.’ If they do that and they file the voluntary disclosure, I think they are at risk of getting audited.

“Every company I’ve ever dealt with had some form of unclaimed property. The question is, how much?” said Carr.

Pridnia believes unclaimed property is “more on the rare side.”

“The typical situation would be somebody writes a check, and it never gets cashed,” he said, and later the person owed the money can’t be found.

“That’s really what an unclaimed property is. I don’t think there is a significant amount of that,” he added.

“I have very few clients that do technically have unclaimed property, and we monitor this for our clients” who use Rehmann services for year-end accounting, said Pridnia. “We know what their bank reconciliation is, and if they have a number of uncashed checks from a year ago, we immediately say, ‘well, you’ve got to file an unclaimed property report on that one.’ And that doesn’t happen very often. I don’t see that happening in 5 percent, maybe 10 percent of the cases.”

Pridnia said he suspects many doctors may have unclaimed property liability because of overlapping payments by both the patient and the patient’s insurance coverage.

Echelbarger said the unclaimed property law “has been around a long time, (but) mostly, over the years, the people who paid attention were financial institutions.”

He said many businesses today apparently had forgotten about the unclaimed property law and some didn’t even know about it. Clients that have discussed it with his firm want to know why they have to file and often state that “this is unfair.”

“My response is, ‘you may think it’s unfair, but it’s in the law. It hasn’t changed — enforcement has changed. And financial institutions have been doing this all along.”

Those unhappy clients “just see it as more regulatory burden,” he added.

Pridnia said there had been a general rule in effect that companies with no unclaimed property did not have to file the annual form. This year, however, he said the Michigan Department of Treasury has decided “they are going to enforce the filing of the form, even if you don’t have unclaimed property.”

He also noted that they have teeth in the unclaimed property law, including civil penalties of up to $5,000 for ignoring it.

“There can be penalties,” agreed Echelbarger, “and the whole issue from our perspective is: If you ignore this filing, you’ve just opened yourself up” to an audit, which can extend far beyond unreported unclaimed property, such as “Michigan Business Tax, potentially some of the Single Business Tax, unemployment, whatever. Because that’s what they do now.”

Echelbarger also noted that the state of Michigan now has “an outside collection agency that’s…ruthless. Let’s put it that way. They pursue it relentlessly.”

Carr mentioned that Michigan has retained Kelmar Associates LLC of Massachusetts, a firm specializing in auditing services to state governments, particularly involving corporate regulatory compliance. He said he has heard Kelmar receives a 12 percent contingency fee on the money it collects.

On its website, the Michigan Treasury says that the state does not take ownership of unclaimed property, but acts as custodian of it until the rightful owner can claim it, “even if the original holder (like a financial institution) is no longer in business.”

Pete Daly is a Grand Rapids Business Journal staff reporter who covers small business, banking and finance, food service and agriculture and government. Email Pete at pdaly at grbj dot com. Follow him on Twitter @PeteDalyGR

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